Gov. Wolf Proposes $33 Billion Spending Plan

On Feb. 6, 2018, Gov. Tom Wolf presented his proposed 2018-2019 fiscal year executive budget to a joint session of the General Assembly. Wolf proposed a General Fund spending plan of $32.9 billion, an increase of 3.1 percent over the current fiscal year.

For a more in-depth discussion of the governor’s proposed budget, sign up for PICPA’s Legislative Update webinar.

First, Wolf again is proposing a severance tax that, according to the House Republican Appropriations Committee, is projected to generate $248.7 million. (Read “Shale We Tax.”)

Second, the governor is proposing mandatory combined reporting to start Jan. 1, 2019. (Read PICPA’s issue brief on combined reporting.) Starting Jan. 1, 2020, the corporate net income tax (CNIT) will be lowered from 9.99 percent to 9.49 percent. The CNIT rate is proposed to be further reduced to 8.99 percent in 2021; 8.49 percent in 2022; and 7.99 percent in 2023 and thereafter.

Here are a few other budget highlights:

More investment in education and workforce development through an additional $225 million to improve education, which includes the following:
-- $100 million for basic education funding
-- $20 million for special education
-- $30 million for Pre-K Counts
-- $10 million for Head Start

$15 million for the Pennsylvania State System of Higher Education.

$50 million for career and technical education, including $40 million for PASmart, a new initiative to strengthen workforce efforts at multiple state agencies.

Increased funding to reduce waiting lists for child care assistance and services for those with autism and intellectual disabilities, and new funding to bolster home and community-based care for seniors.

Level-funding for Penn State University, University of Pittsburgh, Temple University, Lincoln University, and Thaddeus Stevens College of Technology.

Combining the Department of Human Services and the Department of Health into one department: the Department of Health and Human Services.

Additional support to fight the opioid crisis by expanding access to treatment, prevention, and education.

Increasing the minimum wage to $12 per hour.

While the focus is on the $33 billion General Fund budget, the total operating budget is $84.7 billion, an increase of $3.3 billion (or 4 percent) over last year.

The Senate and House appropriations committees will commence their budget hearings on Feb. 20.

Revenue Agrees to Delay 1099-MISC Assessments

The Pennsylvania Department of Revenue (DOR), in response to a request from the PICPA, has agreed to a delay in implementation of new 1099-MISC withholding requirements.

“We recognize that there are legitimate concerns about the timing of the legislation adopting the 1099-MISC withholding requirements,” wrote Secretary Daniel Hassell to the PICPA. “The effective date for the withholding requirement of Jan. 1 has been difficult for many taxpayers, as well as the department.”

The DOR will take the following actions:

1099-MISC income that is subject to the withholding provisions of Act 43 of 2017 will not be subject to assessment for a failure to withhold for a period ending prior to July 1, 2018. However, when tax is withheld, it must be filed and remitted as required by law.

DOR expects that payors/lessors will timely file the related 1099-MISC, with boxes 16 and 17 completed, with the department in January 2019.

Hassell has offered to work with the PICPA to develop refinements to DOR’s guidance, a process the PICPA has already initiated.

PICPA-Supported Depreciation Bill Clears House Committee

The Pennsylvania House Finance Committee unanimously approved legislation supported by the PICPA that allows a state tax deduction for the depreciation of qualified property placed in service on or after Sept. 28, 2017.

On Dec. 22, 2017, the Pennsylvania Department of Revenue (DOR) issued Corporation Tax Bulletin 2017-02 (bulletin) concerning the disallowance and recovery of 100 percent depreciation under Internal Revenue Code (IRC) Section 168(k). The bulletin disallows all depreciation on assets subject to 100 percent federal bonus depreciation placed in service between Sept. 28, 2017, and Dec. 31, 2022. This makes Pennsylvania the only state to fully disallow depreciation on certain assets.

House Bill 2017, sponsored by PICPA member and state Rep. Frank Ryan, CPA (R-Lebanon), achieves a middle ground in response to DOR’s bulletin by allowing depreciation based on a modified accelerated cost recovery system, or MACRS. Under MACRS, fixed assets are assigned to a specific asset class as determined by the IRS. MACRS is the most commonly used tax depreciation method that allows for a larger deduction while the asset is still new.

The bill goes to the full House for possible consideration when it reconvenes in March.

New Online Form for Municipal Authorities and Authority Nonprofits

The Department of Community and Economic Development (DCED) released its new Annual Report of Municipal Authorities and Authority Nonprofits online form last month.

This tip sheet helps explain the mandatory e-filing requirement, which will begin with the 2018 reports, and provide the following information: e-filing registration instructions for both new and current users, definitions for the line items used in the new report, and an explanation of the online business rules.

Those authorities with a 2017 fiscal-year-end date will still receive paper copies of their report, and must submit the paper copies of the report to the DCED. Online filing is available only for the 2018 fiscal-year-end reports.

The new online Annual Report of Municipal Authorities and Authority Nonprofits form will no longer require a separate email address for each authority.

Group Launches New Retirement Security Website

A bipartisan group of state lawmakers, Treasurer Joe Torsella, and other stakeholders unveiled a new website — MyRetirementPA.com — to help people learn what lawmakers are doing and saying about retirement security.

PICPA member and state Sen. Pat Browne, CPA (R-Lehigh), chair of the Senate Appropriations Committee and one of the proponents of the website, said “More than 2 million working Pennsylvanians do not have access to a retirement savings program at work, and three-quarters of a million workers who do have access do not participate. This has to change because, if it doesn’t, Pennsylvania taxpayers will be the ones who have to cover them in retirement.”

Torsella’s Task Force on Private Sector Retirement Security, of which PICPA is an active member, held three public hearings on the retirement problem in Pennsylvania, and has explored the barriers preventing employers from offering their own retirement savings plans for workers and the options available for bringing retirement security to the commonwealth.

January Revenue Report Provides Good News

Through January 2018, Pennsylvania General Fund revenues were $462 million above estimate, according to the Independent Fiscal Office’s Monthly Trends Report. This overage was primarily driven from the receipt of $200 million from the Pennsylvania Farm Show Complex and $90 million collected from newly auctioned minicasino licenses.

Other revenue highlights:

Tax revenue increased by 10.7 percent for the month.

Corporate net income tax increased by 73.7 percent for the month. Collections were likely affected by recent federal tax legislation that encourages firms to accelerate payments or make overpayments related to tax year 2017 liability.

Personal income tax withholding increased by 17.6 percent for the month. Adjusted for due dates, the three- and 12-month average growth rates were 4.2 percent and 3.9 percent, respectively.

Realty transfer tax increased by 11.7 percent for the month, bringing the three-month average growth rate to 8.2 percent and the 12-month average growth rate to 7.3 percent.

Cigarette tax decreased by 16.1 percent for the month.

Nontax revenue increased by 299.4 percent for the month.

The report also compares collections to the prior year. January 2018 General Fund revenues of $3.14 billion reflect an increase of $494.6 million (18.7 percent) compared with the same month in the prior year.

DCED Launches PA Business One-Stop Shop

The Pennsylvania Department of Community and Economic Development (DCED) launched the new PA Business One-Stop Shop to serve as a source to guide entrepreneurs and small businesses through all stages of development: from planning and startup to operation and expansion.

The PA Business One-Stop Shop includes resources for planning a business, registration and permitting, hiring employees, receiving funding and technical assistance, and more. It is intended to take the guesswork out of many business operations and procedures.

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest and fourth-largest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.